Acquiring Mabway For $41MM Our Conclusion
Calian announced a $41MM acquisition of Mabway, a UK-based provider of
large-scale defence role-playing technology for naval and maritime technical
engineering. The deal includes $32MM on closing (4.0x TTM EBITDA), with
a total value up to $41MM, partially contingent on contract extensions. The
acquisition will sit in Calian’s Learning segment, which includes other
simulation-based learning offerings and Calian is working to expand its
presence into other NATO countries. Calian remains active on its M&A
strategy, and acquiring relevant businesses at attractive multiples is an
attractive element of the growth strategy. Post the acquisition, we expect
Calian to increase its F2024 guidance to include Mabway when it reports its
FQ2 on May 14. After adding Mabway to our model, our F2025E adj.
EBITDA increases by 5% and our price target goes from $75 to $76.
Key Points
About Mabway: Mabway provides large-scale defence role-playing
environments that simulate real-world operational environments for technical
engineering education for naval and maritime communities. The company is
based in the UK, and has more than 1,000 staff and contractors. Mabway
has been a prime supplier to the British Army since 2012, with its contract
worth $125MM over three years or $212MM including two one-year
extensions, translating to ~$42MM/year. Calian expressed confidence in
Mabway’s ability to renew the key contract in the future given it has
successfully renewed twice before. The contract comprises ~90% of
Mabway’s revenues, with the remaining ~10% related to its Saudi training
business. We view the acquisition as aligned with Calian’s stated objective to
grow its Learning business in other NATO countries, particularly the UK and
Belgium. We see synergy opportunities through layering Calian’s virtual
training technologies into Mabway’s in-person training offerings.
Spending Up To $41MM, 4.0x TTM EBITDA: Calian will pay $32.4MM at
closing, with a total deal value up to $41MM including an $8.6MM earn-out
contingent on Mabway fulfilling its UK defence contract, including two one-
year extensions. With TTM EBITDA of $8MM, the 4.0x acquisition multiple is
below Calian’s target range of 6x-8x. We expect that the low multiple was a
result of Mabway’s reliance on a single contract, but note that Calian
believes that by combining its existing training capabilities with Mabway, it
can extend into other areas of the UK Ministry of Defense. Mabway’s TTM
revenue ($35MM) and EBITDA ($8MM) imply margins of 23%, accretive to
Calian’s Learning segment (16% in F2023) before synergies.
Capacity For M&A: At its investor day in February, Calian laid out plans to
spend $250MM-$300MM on M&A over 2024-2026, or ~$100MM annually.
The company ended last quarter with leverage at 0.6x, well below its 2.5x
ceiling target, and $139MM of available liquidity in cash and credit facility
capacity. Factoring in $32MM paid at close for Mabway and assuming that is
debt-funded, we estimate Calian’s pro forma F2024 leverage at 0.9x.